N.G.
I have three step children (two twin girls and a son that was adopted by my husband) and two biological children. I have been married for eight years. We have raised, pretty much single-handedly, the girls. Although we tried to raise my older stepson for about a year, he openly preferred living with his biological family and has done so for the past seven years. We found out recently that he dropped out of school. This development was devestating to my husband and me.
Your situation is extremely touchy and I understand both your and your husband's points of view. I think that cutting all monetary ties at your son's age would make him extremely resentful and, being that he lives a distance away, it may alienate him from your husband because teenagers don't see the larger picture of things. On the other hand, I do think that some sort of punishment plan that is in your control is appropriate. I think a long talk and/or a visit is in order with consequences that you and your husband can agree on. Perhaps a third-party counselor can do wonders for getting him back on track. Of course, the goal is to get him back on track for the long haul through any means necessary because dropping out of school will affect his life forever.